The Sorting Hat and a new option

If you have relatives between the ages of 10 and 20, chances are good that you are more familiar with Harry Potter than you care to admit. J.K. Rowling wrote seven novels that chronicle Harry's good-versus-evil adventures at the Hogwarts School of Witchcraft and Wizardry. The first book unveils the Sorting Hat, which magically decides which of four houses each new student will be assigned — Gryffindor, Hufflepuff, Ravenclaw or Slytherin.

Currently, tax status is the closest thing nursing facilities have to the Sorting Hat. Senior care organizations are sorted into one of three groups: government, for-profit or nonprofit. But what if there were a “for-benefit” category that essentially melds the best of these worlds? Heerad Sabeti recently explored the possible payoff of this choice in the Harvard Business Review.

Unlike for-profits, the bottom line for such organizations would be social or environmental outcomes. And unlike nonprofits, their income would be derived from the sale of services, rather than grants and donations, he points out.

In fact, many senior living organizations have already adopted a for-benefit ethos. For example, most nonprofits derive a large chunk of their operational revenue from residents (and their families) rather than donations. But if the new model is to truly flourish, it's clear that changes would be needed to current rules and accounting practices. As is, even the most benevolent nonprofit must figure out a way to shoehorn itself into the tax code's byzantine and oftentimes contradictory confines.

Sabeti predicts that for-benefits will become more commonplace as operators learn to better navigate existing constraints, “and as an ecosystem of support — including financial markets, accounting standards, and professional services — develops around them.”

He adds that with the formalization of the for-benefit structure, we can expect to see the emergence of a fourth sector of the economy. This new component will interact with — but be separate from — government, nonprofits, and for-profit businesses. Ultimately, the rise of that sector is likely to reshape the future of capitalism, he predicts.

For now, that reality seems far away. But if and when such a shift occurs, it will surely revolutionize the way long-term care is organized, delivered and accounted for.